How to perform a KYB verification check (7 steps)

As corporate onboarding frustrations rise in a region where small-to-medium size enterprises make up 99 percent of all businesses, the need for robust Know Your Business (KYB) verification tools has become increasingly crucial for financial institutions (FIs). Several key factors driving the growing demand for KYB solutions include the rise of digital and online transactions that have expanded the scope and complexity of business relationships and the setting up of shell companies to obscure ownership structures.

Since more FIs are dealing with a larger amount of corporate customers – from startups to large-scale organizations – the need to verify their legitimacy and evaluate potential risks has become all the more essential. Globalized markets and increasingly strict regulations compound to amplify corporate customers’ need for comprehensive due diligence. By implementing the right KYB verification tool, firms can strengthen their risk management capabilities, comply with regulatory obligations, and maintain good levels of trust in the integrity of their business relationships. 

What is KYB verification?

KYB verification refers to the process firms undertake to confirm the legitimacy of a company before entering into a business relationship with them. Once the business has been onboarded, ongoing KYB verification checks are performed periodically to ensure any changes in the entity’s risk profile are captured. KYB verification checks essentially help firms know who they are doing business with and can help inform the appropriate level of vendor due diligence that should be applied to the customer’s account.

Why is KYB verification important?

While Know Your Customer (KYC) regulations have been a standard anti-money laundering (AML) obligation globally since the passage of the US Patriot Act in 2001, the regulation did not initially require firms to scrutinize the identity of the businesses they had relationships with. In 2016, the Financial Crimes Enforcement Network (FinCEN) addressed the blindspot by establishing KYB rules in its Customer Due Diligence Requirements for Financial Institutions (the CDD Final Rule). The Final Rule made KYB verification an obligation for financial institutions entering into B2B partnerships or any other business relationship. 

Being a critical component of an effective risk management framework, KYB solutions not only protect FIs and their customers, they also help protect the integrity of the financial system. Additional benefits that highlight the importance of KYB screening include:

• Mitigating the risk of onboarding illegal or illegitimate companies.
  Through robust identity verification measures, firms can ensure the company they are onboarding is a legally recognized entity. False or misleading information can also be detected during the screening process, alerting firms to illegitimate companies that may be engaging in illicit activities or facilitating financial crimes.
• Identifying ownership structures.
  The KYB process involves identifying and verifying key personnel associated with the business. This may include the company’s directors, officers, and beneficial owners. By reviewing the provided information and cross-referencing the data against multiple registries, firms can gain insights into the individuals who hold influential positions within the organization and understand their roles in the ownership structure. Ultimately, this can ensure transparency and accountability in business relationships.
• Increasing efficiency.
  By leveraging an automated KYB screening solution, firms can streamline the process of gathering information from various sources, such as public registries and government databases. This automation reduces the need for manual data entry and significantly reduces the time and effort required. Further, API-driven tools that utilize dynamic risk scoring allow firms to keep everything in one system and allocate their resources according to the level of risk detected. 
• Creating a holistic overview of the customer.
  KYB verification helps businesses create a comprehensive and holistic view of the customer by highlighting the customer’s identity, ownership structure, risk profile, adverse media presence, and compliance standing. 

7 steps for an effective KYB verification check

With KYB by ComplyAdvantage, firms can perform an effective KYB verification check in seven steps.

1. Input company details

Using API webhooks, firms can create a KYB case using their internal systems. Client-declared company information can be inputted along with additional data uncovered during analyst-led investigations. These details are stored in the firm’s internal systems, eliminating the need for siloed compliance processes and multiple platforms.

2. Auto-verify registry data against customer-provided information

At this stage, compliance staff can ensure the collected company data matches the registry by auto-validating the information collected from their customer. This may include checking that the Taxpayer Identification Number (TIN) matches against the Internal Revenue Service (IRS) register to mitigate the risk of onboarding fraudulent businesses.

Firms can also check for additional risks that may be associated with the business, including:

• Recent incorporation.
• High-risk industries.
• High-risk countries.

3. Add any related UBO information

Next, firms can evaluate the accuracy of registry information related to key entities associated with the business. Compliance staff can also create a holistic overview of a case by manually uploading supplementary information about beneficial ownership gathered at the identity verification (IDV) stage.

4. Receive dynamic risk scores for the company and its controlling entities

During the screening process, firms can benefit from the KYB system’s dynamic functionality that updates as the risk of the business changes, alerting compliance staff to review. By applying their own risk formula, firms can ensure the risk scores align with the business’ appetite for AML/CFT threats.

Using the risk score, firms can automate the level of due diligence that should be performed on the business as it is onboarded and on an ongoing basis thereafter. 

5. Screen the entity and any associated entities against sanctions, watchlists, PEPs, and adverse media

The business’ risk score will continue to update as the company and its related entities are screened against a real-time global database of sanctions, watchlists, politically exposed persons (PEPs), and adverse media. 

6. Decide to onboard or reject

Depending on the level of risk the business poses, compliance staff can now decide to onboard or reject the entity.

7. Perform ongoing monitoring

Once a customer has been onboarded, they are subject to ongoing monitoring measures, which can be determined automatically in light of the customer’s risk score. If the entity presents a low risk, firms may adopt simplified due diligence (SDD) measures. If a higher risk is presented, firms may perform standard or enhanced due diligence (EDD) measures. With an automated KYB solution, firms can automatically monitor for changes in the customer’s AML risk profile.

The importance of automated KYB verification checks

To meet the challenge of AML/KYB compliance without negatively affecting the customer experience, firms must seek to deploy a technological solution. Practically, this means automating the collection and analysis of vast amounts of data from a range of sources while building enhanced speed and efficiency into verification measures to reduce administrative friction. 

• Efficiency: Automated KYB solutions enable businesses to handle a larger volume of KYB checks in a shorter time, enabling faster onboarding and reducing alert remediation time.
• Accuracy: Minimizing the risk of human error, automated KYB verification checks process and validate data with high accuracy, reducing the chance of data entry mistakes or oversights. By relying on automated algorithms and real-time data, businesses can ensure consistent and reliable results, leading to more accurate decision-making regarding remediation. 
• Scalability: Manual KYB screening processes can become overwhelming and time-consuming, especially when dealing with many customer applications or during periods of high demand. Automated solutions are scalable and can handle increased columns without compromising efficiency or accuracy. Businesses can adapt to fluctuating workloads, ensuring a smooth and consistent screening process. 
• Compliance: When partnering with a KYB vendor, firms should ensure their automated tool complies with relevant regulations and requirements. The solution should integrate with compliance databases, sanctions lists, and regulatory frameworks, ensuring businesses are consistently screening against up-to-date and relevant information. 
• Risk mitigation: Automated KYB functionalities such as dynamic risk scoring are key for firms conscious of implementing a risk-based approach when making decisions about onboarding or conducting EDD.